August 4, 2008 – Despite a mild recovery in 2Q08, global DRAM makers are once again building inventories and pulling the rug out from prices, and the buildup will likely push out a full market recovery until the end of next year, according to a new warning by iSuppli.
This spring the DRAM market “bottomed out” and profits improved for a few top-tier suppliers, with a handful of other suppliers expected to return to the black in the next few months. But OEM contract prices are seen declining in August and September again by more than 10%, because inventories in the channel and among PC OEMs are rising again, even as macroeconomic concerns fuel uncertainty about end-market demand, notes Nam Hyung Kim, director and chief analyst, memory ICs, at iSuppli.
Also contributing to a 3Q DRAM price plunge is the fact that DRAM shipments actually exceeded expectations in 2Q, climbing 15% from 1Q instead of the expected 10%, which suggests that excess inventory is being pushed from the suppliers out to the buyers.
iSuppli is currently maintaining the “Neutral” near-term outlook it placed on the DRAM sector back in April, since DRAM firms’ reduced capex levels will eventually rebalance supply levels, but the recovery won’t happen quickly. The firm projects DRAM wafer output to slow to just ~10% growth in 2009 vs. the 40% seen in 2007. And further aggressive migration to sub-60nm process technologies by market leaders Samsung and Hynix will only boost their output and risk further oversupply perhaps lasting into 1H09, and delaying any market recovery until later in the year.
NAND rally “temporary”
Meanwhile, the NAND flash sector, for which iSuppli slashed its outlook in April, also witnessed a short-lived comeback in 2Q08, writes Kim. “Terrible conditions” persist, though, also due to a “major inventory overhang and weak consumer spending.” Suppliers have been working those stockpiles down, though, he writes, and supply/demand should come back into balance in 4Q08, along with a price recovery.